Casino Enterprise Management

The UGA Index for the period ending May 31, 2013, was up 2.5 percent sequentially to 244.8 from 238.7 at April 30, 2013. As an illustrative example, if an investor bought $100,000 of the index on April 30, 2013, the investment would hypothetically be worth $102,543 on May 31, 2013. Note, however, that the UGA Index has been compiled for illustrative purposes only and is not being offered as an investment vehicle by Union Gaming Analytics or any affiliated entities.

In comparing the UGA Index to the broader markets, the Dow Jones Industrial Average was up 1.9 percent sequentially and the S&P 500 was also up 2.1 percent sequentially.

We did see notable outperformance from several Macau gaming operators (Galaxy Entertainment, MGM China Holdings and SJM Holdings). Domestically, we saw outperformance at Churchill Downs, MGM Resorts International and Boyd Gaming.


Top index performers include the following:

•    Galaxy Entertainment Group was up 16.8 percent sequentially and contributed 19.6 points to the index. The company reported 1Q13 results in mid-May and revenues were up both year over year and sequentially. For reference, the company is a very mainland Chinese-focused operator with two assets in Macau, one on the Macau Peninsula and one on the Cotai Strip.
•    MGM China Holdings was up 13.4 percent sequentially and contributed 4.2 points to the index. The company reported 1Q13 in the early part of the month. The results were above consensus expectations and all segments (VIP, mass tables and slots) continue to grow generally at or above market-wide rates.
•    Churchill Downs was up 9.8 percent sequentially and contributed 0.1 points to the index. The company’s marquee event (Kentucky Derby) was held in the month. While race day attendance and betting were impacted by heavy rain, CHDN’s preliminary estimates call for $4.5 million to $6.5 million growth in EBITDA.

Underperformers include the following:

•    Caesars Entertainment was down 8.9 percent sequentially and contributed 0.1 points to the index. The company reported 1Q13 results in the month that missed consensus expectations.
•    PENN National Gaming was down 6 percent sequentially and contributed 0.8 points to the index. PENN is trading as a special situation and not on fundamental results as it transitions into a REIT.
•    Genting Singapore was down 5.5 percent sequentially and contributed 7.9 points to the index. The property reported 1Q13 results in the beginning of May. The results were impacted by an incredibly low hold rate at Resorts World Sentosa.

The month of May featured a busy earnings calendar. Companies that reported 1Q13 results included Pinnacle Entertainment, Las Vegas Sands, Sands China, Caesars Entertainment, MGM Resorts International and Melco Crown Entertainment. Across the regional landscape, regional gaming markets were a bit softer in April than levels we observed throughout March. In Ohio, the state Legislature banned internet cafés, and we expect the removal of the machines to be a positive for commercial casino operators. On the Las Vegas Strip, Memorial Day weekend is a major holiday for visitation, and this year it also featured the opening of Light Nightclub/Daylight Beach Club at Mandalay Bay. Finally, the first Saturday in May featured the Kentucky Derby, a key event for Churchill Downs.

MGM1Q13 Earnings
MGM Resorts International reported 1Q13 earnings in early May. The results were above consensus expectations as the company reported its best quarter in five years. In Las Vegas, the high-end properties led the way with outperformance at Bellagio and the MGM Grand. Domestically, the only relative softness was at MGM’s regional properties (Mississippi & Detroit). Finally, results in Macau were above expectations.

LVS 1Q13 Earnings
Las Vegas Sands reported earnings on March 1. The results were above expectations both on a top-line and EBITDA basis. Notably, Singapore was very strong and would have been even stronger when factoring out bad luck. In Macau, results were ahead of expectations with outperformance at the Venetian Macao and Sand Macao, offset by some weaker than expected results at the Four Seasons. Domestically, Las Vegas was above expectations with good luck playing a factor (higher hold).

MPEL 1Q13 Earnings
MPEL announced solid 1Q13 results in the month with both revenue and EBITDA above expectations. Overall, trends in Macau remain very strong, which was clearly reflected in MPEL’s earnings.

Macau May Gaming Revenue
In May, gross gaming revenue (GGR) grew 13.5 percent, to MOP29.6 billion (US$3.7 billion) against a +7.3 percent comp. This represented the second highest monthly GGR ever recorded. On a year-to-date basis, Macau GGR is now up 14.2 percent.

M&A Activity
While there were no major acquisitions during the month, there was a notable development related to the pending acquisition of Ameristar Casinos by Pinnacle Entertainment. The Federal Trade Commission voted unanimously to seek a temporary restraining order from a federal judge blocking the proposed purchase. The FTC contends that the combined entities would be detrimental to gaming customers in two markets (St. Louis and Lake Charles) generally as it relates to promotional allowances, table games rules/regulations and poker rakes. While we have seen state gaming boards involved in market concentration issues, we don’t have many clear examples of the FTC contesting mergers and acquisitions in the gaming space. As far as other hurdles go, the Nevada Gaming Commission unanimously approved the acquisition, and the deal has also been approved by Ameristar’s shareholders. At this point, it remains unclear how the FTC challenge of the proposed acquisition will ultimately play out.

Regional Gaming Revenue Trends
In April, (Note–April results were reported in May), regional state gaming revenue results largely underperformed expectations (IA -1.5 percent, IN -7.7 percent, MO -1.3 percent, CO-0.7 percent, LA 2.6 percent, CT -7.0 percent, NJ -12.1 percent). The lackluster April numbers followed some enthusiasm related to March regional gaming revenues.

In Nevada, Las Vegas Strip March gaming revenues were up 13.1 percent. The strength in the March numbers was driven by higher hold versus the prior year and modest strength in baccarat. Note: the Nevada Gaming Control Board reports results with a two-month lag, so, while the regional markets were reporting March results this month, Nevada was reporting February results. From the perspective of our index, March Las Vegas revenues don’t materially impact stock performance, given the numbers are already baked into 1Q13 earnings that are reported prior to the Nevada revenue release.

Legislative Developments
In May, legislation that sought to bring a single casino to New Hampshire with 5,000 slot machines and 150 table games was rejected in the state House of Representatives. In Ohio, the state Senate voted by a 27-6 margin to pass a bill (HB7), which will effectively eliminate internet cafés. The cafés had been operating in contrast to the stringent regulatory environment of commercial casinos. The major gaming expansion bill in Illinois (SB1739) made major headlines during the month, but both chambers of the legislature were unable to pass bill before the session ended on May 31. The Legislature will reconvene in the fall (October/November) for a shorter veto session, or a special session could be called to tackle the gaming debate.

What to Look for in Next Month’s Index
In next month’s June index, the earnings calendar is relatively light.The only company we expect to report earnings is Isle of Capri. On the legislative front, things quiet down as we head into the summer months and most states’ legislative sessions have ended. Regarding regional casino operators, we will be observing whether May trends indicate any top-line same-store growth. Finally, on the mergers and acquisitions front, we will closely monitor how the FTC situation with the Pinnacle acquisition of Ameristar unfolds.